Effects of Foreign Exchange Intervention Under Public Information: the Chilean Case

This paper studies the effects of exchange rate interventions using daily and intraday data for Chile, from 1998 to 2003. Its main contribution is the recognition of the role played by transparency and public announcements in the success of the intervention policy, through the existence of an expectations mechanism which directly impacts the exchange rate. Three foreign exchange policy instruments are distinguished –spot, dollar denominated papers (BCD´s) and announcements- and treated as independent interventions. Time series estimations are used to capture the effect of the traditionally studied spot interventions, as well as the effects associated to the announcement channel that we propose as potentially relevant. Results show that the impact of individual interventions (spot and BCD) are extremely small and, in most cases, non-significant. Also, the importance of the hypothesized announcement mechanism is confirmed. The impact of Central Bank actions on the exchange rate’s level and trend seem to be channeled through the public announcements made by the monetary authority. The market adjusts its expectations to the information revealed through them, with the exchange rate responding accordingly. These effects occur on longer time spans than the ones suggested by the traditional literature. The negligible effect of individual interventions is also found, for the year 2001, with the use of intraday data.

Labor Markets and Institutions: An Overview

This paper reviews the issues and papers presented at the VII Annual Conference of the Central Bank of Chile on Labor Market and Institutions, that will soon be compiled in a book by the same name. It discusses the origins of labor regulations, which are many times not associated to specific market failures. It measures its effects on labor markets, growth and inequality. Effects that vary by type of regulation, the context in which they are applied and the degree of enforcement. Finally, the paper presents work how regulations should be designed in order to generate the appropriate incentives for both firms and workers. The papers reviewed are potentially very useful in the understanding the type of regulation that should be implemented, when and how.

Education and Economic Growth in Chile

Human Capital, or more precisely education, plays an important role in economic growth. Chile's structural reforms in this front have contributed with more than one percentage point of higher growth during the nineties. If we continue in the same human capital trend growth, or even better, if we achieve radical changes that puts us at the standards for developed nations, we could benefit from substantially higher growth rates. This paper critically reviews the Chilean education system and identifies quality as its mayor problem. We study the reforms and their effects on quantity and quality of education and propose further changes that will generate substantial improvements and potential benefits in increased future growth.

Tipo de cambio flexible y fijación de metas inflacionarias en Chile: experiencia y aspectos resaltantes

(Disponible en idioma inglés) Los primeros cinco años del régimen de tipo de cambio flexible y la fijación de metas inflacionarias en Chile han arrojado resultados positivos. La inflación está controlada, el tipo de cambio ha evolucionado a la par de las condiciones externas, la política monetaria ha sido de tipo anticíclico y todo indica que el ciclo se ha suavizado. Aunque ha aumentado la inestabilidad del tipo de cambio, tal como cabría anticipar con un sistema flexible, lo mismo ha ocurrido en otros países de características similares. Este aumento de la inestabilidad muestra valoraciones extremas del tipo de cambio real más bajas que en el pasado y también se aprecia en otros países con sistemas cambiarios distintos. Avances importantes en la profundización del mercado de derivados, así como una menor transmisión del tipo de cambio a la inflación, han contribuido a mejorar la credibilidad y la viabilidad del actual marco de políticas, al tiempo que se minimizan los costos potenciales derivados de ese marco.

Diagnosis and Propasals for Chilean Education

Education plays an important role in economic growth. Chile’s structural reforms in this front contributed more than one percentage point of higher growth during the nineties. If we continue in the same human capital trend growth or, even better, if we achieve radical changes that place us at the standards for developed nations, we could benefit from substantially higher growth rates. This paper critically reviews the Chilean education system and identifies quality as its mayor problem. We study the reforms and their effects on the quantity and quality of education and propose further changes that should generate substantial improvements.

Is Private Education Better? Evidence from Chile

This paper uses Chile’s voucher system to provide new evidence on whether private schools are more efficient than publicly operated schools. It contributes to the world debate by analyzing a universal voucher system. It contributes to previous Chilean studies by reducing the selection bias and allowing heterogeneous treatment effects. The results suggest that public schools are neither uniformly worse nor better than private schools. Rather, public schools are relatively more effective for students from disadvantaged family backgrounds. Such a system of comparative advantage is consistent with the coexistence of public and private schools in most Chilean communes.

Efectos de las Intervenciones en el Mercado Cambiario: El Caso de Chile

Using daily data on intervention activities by the Central Bank of Chile between 1998 and 2003, this paper studies the impact of these actions on the peso/dollar exchange rate. First, results are obtained from an event study, finding no evidence of a significant effect of interventions on the level and trend of the exchange rate. However, these findings could be biased due to the omission of relevant control variables and the simultaneity between interventions and the exchange rate. Time series estimates are used to deal with these potential problems. Statistical evidence of weak exogeneity between intervention and exchange rate shows that the potential endogeneity problem is not relevant given the purpose of the paper. OLS estimations suggest that the effect of daily interventions are not statistically different from zero in 2001, but that the public announcements of the beginning of an intervention period did have an effect in the level and trend of the exchange rate in that year, as well as in 2002-2003. The announcement effect is nil in 1998, as interventions were carried out with less transparency. The results are robust to alternative specifications and instrumental variable estimations.